Income Tax Act 2007 (c. 3)

Part 4 U.K. Loss relief

Chapter 3 U.K. Restrictions on trade loss relief for certain partners

Introduction U.K.

102 Overview of Chapter U.K.

(1) This Chapter restricts the amount of relief that may be given for any loss made by an individual in a trade carried on by the individual as—

(a) a limited partner in any tax year (see sections [F1 103A, 103C to 105, 113A and 114]),

(b) a member of a limited liability partnership (an “LLP”) in any tax year (see sections [F2 103C, 103D, 107 to 109, 113A and 114]), or

(c) a non-active partner [F3 (see sections 103B to 103D and 110 to 114) ].

(2) This Chapter also restricts the amount of relief that may be given for any loss made by an individual in a trade carried on by the individual as a partner in a firm if the trade consists of or includes the exploitation of films (see [F4 section 115 ]).

[F5 (2A) This Chapter also provides for no relief to be given for a loss made by an individual in a trade carried on by the individual as a partner in a firm in certain cases where some or all of the loss is allocated to the individual rather than a person who is not an individual (see section 116A).]

(3) This Chapter needs to be read with sections 791 to 795 (income tax charge recovering excess relief for losses made by individuals carrying on a trade in partnership).

(4) See also—

(a) sections 796 to 803 (income tax charge in relation to individuals claiming relief for film-related trading losses), and

(b) sections 804 to 809 (income tax charge in relation to individuals carrying on a trade in partnership claiming relief for licence-related trading losses).

Textual Amendments

F1 Words in s. 102(1)(a) substituted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 7(2)(a), 21

F2 Words in s. 102(1)(b) substituted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 7(2)(b), 21

F3 Words in s. 102(1)(c) substituted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 7(2)(c), 21

F4 Words in s. 102(2) substituted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 7(3), 21

F5 S. 102(2A) inserted (with effect in accordance with Sch. 17 para. 14 of the amending Act) by Finance Act 2014 (c. 26), Sch. 17 para. 8(2)

103 Meaning of “sideways relief”, “capital gains relief” and “firm” U.K.

(1) For the purposes of this Chapter sideways relief is—

(a) trade loss relief against general income (see sections 64 to 70), or

(b) early trade losses relief (see sections 72 to 74).

(2) For the purposes of this Chapter—

(a) capital gains relief is, in relation to a loss, the treatment of the loss as an allowable loss by virtue of section 261B of TCGA 1992 (use of trading loss as a CGT loss), and

(b) capital gains relief is given for a loss when it is so treated.

(3) References in this Chapter to a firm are to be read in the same way as references to a firm in Part 9 of ITTOIA 2005 (which contains special provision about partnerships).

[F6 103A Meaning of “limited partner” U.K.

(1) In this Chapter “ limited partner ” means an individual who carries on a trade—

(a) as a limited partner in a limited partnership registered under the Limited Partnerships Act 1907,

(b) as a partner in a firm who in substance acts as a limited partner in relation to the trade (see subsection (2)), or

(c) while the condition mentioned in subsection (3) is met in relation to the individual.

(2) An individual in substance acts as a limited partner in relation to a trade if the individual—

(a) is not entitled to take part in the management of the trade, and

(b) is entitled to have any liabilities (or those beyond a certain limit) for debts or obligations incurred for the purposes of the trade met or reimbursed by some other person.

(3) The condition referred to in subsection (1)(c) is that—

(a) the individual carries on the trade jointly with other persons,

(b) under the law of a territory outside the United Kingdom, the individual is not entitled to take part in the management of the trade, and

(c) under that law, the individual is not liable beyond a certain limit for debts or obligations incurred for the purposes of the trade.

(4) In the case of an individual who is a limited partner as a result of subsection (1)(c), references in this Chapter to the individual's firm are to be read as references to the relationship between the individual and the other persons mentioned in subsection (3)(a).

Textual Amendments

F6 Ss. 103A, 103B inserted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 8, 21

103B Meaning of “non-active partner” etc U.K.

(1) For the purposes of this Chapter an individual carries on a trade as a non-active partner during a tax year if the individual—

(a) carries on the trade as a partner in a firm at a time during the year,

(b) does not carry on the trade as a limited partner at any time during the year, and

(c) does not devote a significant amount of time to the trade in the relevant period for the year.

(2) For the purposes of this Chapter an individual devotes a significant amount of time to a trade in the relevant period for a tax year if, in that period, the individual spends an average of at least 10 hours a week personally engaged in activities [F7 of the trade and those activities are carried on—

(a) on a commercial basis, and

(b) with a view to the realisation of profits as a result of the activities.]

[F8 (3) For this purpose “the relevant period” means—

(a) where the individual first started to carry on the trade less than six months before the end of the tax year, the period of six months beginning with the date on which the individual first started to carry on the trade;

(b) where the individual permanently ceased to carry on the trade less than six months after the start of the tax year, the period of six months ending with the date on which the individual permanently ceased to carry on the trade;

(c) in any other case, the tax year.]

F9 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) If—

(a) any relief is given on the assumption that the individual devoted or will devote a significant amount of time to the trade in the relevant period for a tax year, but

(b) the individual in fact failed or fails to do so,

the relief is withdrawn by the making of an assessment to income tax under this section.]

Textual Amendments

F6 Ss. 103A, 103B inserted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 8, 21

F7 Words in s. 103B(2) substituted (21.7.2008 with effect in accordance with s. 61(2) of the amending Act) by Finance Act 2008 (c. 9), s. 61(1)

F8 S. 103B(3) substituted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2022 (c. 3), Sch. 1 paras. 49(2), 61(1)

F9 S. 103B(4) omitted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2022 (c. 3), Sch. 1 paras. 49(3), 61(1)